Budget 2014 – The Tax Changes

Re: Budget 2014We wish to highlight some of the more important tax matters announced and which may be of interest to you, following Minister Noonan’s speech on Tuesday 15 October 2013.

IntroductionThe general direction of tax policy would now appear to be to continue the stabilisation of the exchequer finances, through tax collection from the broad base of new taxes introduced over the past few years since the onset of the financial crises. In our view it is a given that for the next decade tax on Income for middle to high income earners will remain punitively high – at a full rate of circa. 55%.

For this reason, those who are in control to some extent of their own finances through interaction with their business and family run companies, ought to continue to focus on driving down taxable income earned personally and fund lifestyle requirements from non-income sources. This often involves changing the nature of asset ownership and perhaps even restructuring your personal and business assets to achieve a better blended result between income and capital utilisation.

The Budget this year has not changed the landscape for business owners when it comes to their tax – it remains essential to forward plan.

Tax Changes of NoteSome highlights to note in the announcements were:

Removal of high earners restriction on investments in the Enterprise Investment Scheme (replaced “BES Relief”) for 30% tax relief on up to €150,000 per annum invested in qualifying companies. This may be of interest to individuals who already claim tax relief on historic tax incentive investments who would otherwise be largely restricted from benefitting from this relief.

Extension of the CGT relief for purchase of new property where it is held for 7 years or more. This relief was due to apply only to property acquired before the end of 2013 and will now apply to properties purchased before the end of 2014. This will be of significant interest to those intending to make property investments.

Increase of DIRT from 33% to 41%, a very large increase on the tax to be taken from returns on deposit interest income. This will further reduce the returns on deposits and may encourage more investment of surplus cash.

Removal of ‘Top Slice Relief’ on termination payments. However, it is important to note that the valuable relief which allows the receipt of up to €200,000 tax free from on cessation of any employment remains available. This may be of particular interest to business owners.

Retention of 9% VAT rate for certain service ‘tourism’ related businesses (restaurants, hotels, hair salons amongst these). On VAT the cash receipts basis of accounting for VAT which can provide a real cashflow benefit to businesses is to be extended from April 2014 to all businesses with an annual turnover of less than €2m. In a new measure, claims for VAT credits on invoices which have not been paid within 6 months are to be disallowed.

A new CGT relief for gains arising from sale of a new qualifying business. This would appear to be a partial reintroduction of an old discontinued relief for re-investment in new business ventures by serial entrepreneurs.

Private Pension Funds

Despite repeated promises to abolish the 0.6% annual levy on funds held in a private pension, this has actually been effectively increased to 0.75% for 2014 with a ‘promised’ reduction thereafter to 0.15% from 2015 onwards. Further reductions in the maximum size allowed for pension provision are also announced, down from €2.3m to €2.0m.

Those with pension benefits which already exceed €2m will need to review what action may be required by them to protect their previous entitlement to the higher limits.

A new bank levy is introduced – the cost of this is likely to be passed onto customers by banks through charges and reduced returns on funds etc.

Almost €500m of the projected tax increases are to come from private pension funds, DIRT tax and the bank levy – all of which undoubtedly affect those with higher earnings, who already pay the highest amounts of tax. These three measures are clearly designed to extract the most from those who already pay the most but in a manner which is less obvious or directly invasive.

Tax Policy ChangesThe dates for Pay & File for self-assessment taxpayers are under review and in addition a review is to be undertaken of the tax appeal system. These announcements signal possible future important changes – in particular any change to the appeals system may weaken the taxpayer’s ability to challenge Revenue on disputed tax matters.

ConclusionAside from DIRT rates, there are no headline tax rate changes. CGT and CAT (Gift/Inheritance Tax) remain at 33% and tax reliefs in these areas remain untouched at least for now (CGT retirement relief, CAT tax free thresholds). Income Tax and USC remain at their 2013 levels for 2014. The headline rate of Corporation Tax (12.5%) is again reconfirmed as remaining in place for the foreseeable future.Opportunities to reduce the overall direct tax burden on income and family wealth remain, and a review of personal/business circumstances specifically focussed on the tax burden being suffered under existing structures, may often yield direct and tangible savings

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